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Emerging Europe

Emerging Europe Economics Weekly

Hungary tightening, ruble strength, Bulgaria support

Officials in Hungary sought this week to reassure investors that they will tackle inflation and mounting macro imbalances. Tighter policy is needed, which underpins our below-consensus growth forecasts. Elsewhere, the Russian ruble strengthened beyond 60/$ this week – its strongest level since 2018 – which, combined with the stabilising inflationary backdrop, will give the CBR the confidence to ease capital controls and cut interest rates further. Finally, Bulgaria announced measures to shield the economy from high inflation this week, but we doubt that it will be enough to prevent a recession.

20 May 2022

Emerging Europe Economics Focus

War in Ukraine to exacerbate macro imbalances in CEE

The war in Ukraine will exacerbate two key macro risks in Central and Eastern Europe this year: wage-price spirals (particularly in Poland) and widening current account deficits (particularly in Hungary and Romania). Monetary policy will do most of the heavy lifting to cool demand and we think that interest rates will stay higher for longer than most expect. This is one factor behind our below-consensus GDP growth forecasts for the region. In the meantime, currencies will weaken further against the euro.

19 May 2022

Emerging Europe Economics Update

Turkey: how will officials respond to falls in the lira?

The Turkish lira has come under renewed pressure in recent weeks but interest rate hikes to shore up the currency are off the cards. Instead, further sharp and disorderly falls would most likely be met by formal capital controls and more strident lira-isation efforts.

19 May 2022

Our view

The Russian economy will collapse this year and we expect spillovers from the war in Ukraine to cause a recession in many of the smaller countries, particularly Bulgaria and the Baltic States. Loose fiscal policy and strong labour market dynamics should help Poland and Hungary to outperform but, even so, we’re more downbeat on GDP growth than the consensus. The possibility of a halt to Russian gas supplies is a growing downside risk. We think inflation will end the year stronger and interest rates higher than most expect. The economic backdrop of widening macro imbalances, the euro-zone recession risk and aggressive global monetary tightening will cause the region’s currencies to depreciate.